Increasing One's Chances of Obtaining a Bank Loan: Business Financing Essay

Open, View, and/or
Download this Document

Total Length: 1411 words ( 5 double-spaced pages)

Total Sources: 3

Page 1 of 5

Business Financing: Increasing One's Chances of Obtaining a Bank Loan

Applying for a loan in a bank or any financial institution with lending capabilities can be frustrating, especially if the applicant does not know exactly what they are supposed to do to win the loan officer's confidence. Banks have an obligation to protect the funds and assets that clients have entrusted to them; as such, they often are very conservative. At the same time, they also are in business, out to make profit by recouping the principal of loans that they extend to borrowers, obtaining a profitable rate of return on the same, and ensuring that borrowers prosper and increase their deposits with them. In the final analysis, this only shows that it is the borrower's responsibility, therefore, to develop and maintain positive relations with the bank, and provide sufficient reason for the bank to feel safe entrusting their capital to them. This text is, in basic terms, a guide to business owners as to what exactly needs to be done to get bankers to tick. It outlines the various factors that bankers consider before approving or rejecting a loan application, and the fundamental measures that borrowers could take to get their loan applications approved.

Factors Considered During a Loan Application

Regardless of the type of loan being applied for, bankers will often consider the following four factors in determining whether or not to give approval:

Credit History: loan officers will often review a borrower's personal credit history as well as that of their business (if it is not a start-up) to determine their degree of creditworthiness (Abraham & Zhang, 2008). For a business that has been in existence, lenders will often consider a business creditworthy if it has at least five trade experiences. Towards this end, business persons who have been running their business with personal assets alone and no credit could boost the chances of their entities being considered creditworthy by making a number of trade credit purchases before making their loan application. The applicant's personal credit history can be obtained from consumer credit reporting agencies; it is an outward representation of an individual's character in terms of honoring their debts (Abraham & Zhang, 2008).

Stuck Writing Your "Increasing One's Chances of Obtaining a Bank Loan: Business Financing" Essay?

View All Our Example Increasing One's Chances of Obtaining a Bank Loan: Business Financing Essay

Have A Custom Example Essay Written



Availability of Collateral: collateral is some kind of security that a borrower offers the bank or lender to obtain credit; if the borrower defaults, the lender may seize the property put forth as collateral to recover the principal amount (Abraham & Zhang, 2008). Collateral is one of the crucial requirements for obtaining credit, and is meant to minimize the risk associated with extending the same. Collateral will often be required to match the loan being extended, and its useful life has to either meet or exceed the term of the loan. Most lenders will require that in addition to the above conditions, property put forth as collateral not have any prior or superior liens. This is their way of ensuring that that they have a priority claim over the property in case of default.

The Business' History of Cash Flows: a lender will often review a business' cash-flow cycle -- the average period between the time inventory is purchased and when it is sold, or when account receivables are collected - to determine whether the business' daily operations are capable of supporting the loan being sought; that is, whether enough money is being generated on a daily basis to help repay the loan. Besides money generated from sales less everyday expenses, a business' cash flows will also include proceeds from financial or investment activities such as leases, purchase of machinery, insurance, contracts, and so on. A business will be deemed creditworthy if its ongoing collections and sales represent a regular and sufficient stream of cash (Abraham & Zhang, 2008).

In this regard, a business owner can boost their chances of obtaining credit by improving their cash flow position through delaying their debt payments, collecting receivables as soon as possible, accelerating cash receipts and reducing credit allowances, or reviewing relevant tax strategies; for instance, availing accelerated depreciation to increase the business' short-term deductions (Abraham & Zhang, 2008).

The Debt-Net worth Ratio: this ration measures the degree to which a business is supported by debt. A high debt-net worth ratio….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Increasing One's Chances Of Obtaining A Bank Loan Business Financing" (2015, February 24) Retrieved May 18, 2024, from
https://www.aceyourpaper.com/essays/increasing-one-chances-obtaining-bank-loan-2148630

Latest MLA Format (8th edition)

Copy Reference
"Increasing One's Chances Of Obtaining A Bank Loan Business Financing" 24 February 2015. Web.18 May. 2024. <
https://www.aceyourpaper.com/essays/increasing-one-chances-obtaining-bank-loan-2148630>

Latest Chicago Format (16th edition)

Copy Reference
"Increasing One's Chances Of Obtaining A Bank Loan Business Financing", 24 February 2015, Accessed.18 May. 2024,
https://www.aceyourpaper.com/essays/increasing-one-chances-obtaining-bank-loan-2148630
   

Open, View, and/or
Download this Document
order custom essay example